Cholamandalam Investment and Finance : Call Transcript Q3-FY-2023 Feb 01, 2023

"Cholamandalam Investment and Finance Company

Limited

Q3 FY '23 Earnings Conference Call"

February 01, 2023

MANAGEMENT: MR. VELLAYAN SUBBIAH - CHAIRMAN AND NON-

EXECUTIVE DIRECTOR - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MR. RAVINDRA KUNDU - EXECUTIVE DIRECTOR -

CHOLAMANDALAM INVESTMENT AND FINANCE

COMPANY LIMITED

MR. ARUL SELVAN - PRESIDENT AND CHIEF

FINANCIAL OFFICER - CHOLAMANDALAM

INVESTMENT AND FINANCE COMPANY LIMITED

MODERATOR: MR. NISCHINT CHAWATHE - KOTAK SECURITIES LIMITED.

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Cholamandalam Investment and Finance Company Limited

February 01, 2023

Moderator:Ladies and gentlemen, good day, and welcome to Cholamandalam Investment and Finance Company Limited Q3 FY '23 Earnings Conference Call, hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities Limited. Thank you, and over to you, sir.

Nischint Chawathe: Thank you, Neerav. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Investment and Finance Company Limited. We have with us the senior management of Chola today to discuss the 3Q FY '23 performance. Management is represented by Mr. Vellayan Subbiah, Chairman and Non-Executive Director; Mr. Ravindra Kundu, Executive Director, and Mr. Arul Selvan, President and CFO.

I would now like to hand over the call to Vellayan for the opening comments, after which, we'll take Q&A. Thanks.

Vellayan Subbiah: Nischint, thanks so much. So good morning, everybody. I know everybody is waiting for the budget at 11:00. So I think from Chola's perspective, there is cause to celebrate in that our total AUM crossed the milestone of INR 1 lakh crores. That is up by 31% year-on-year. This has been a target for the company for a while, so we're glad to achieve that target and to celebrate it. So that is a quick start. Disbursements basically are at INR 17,559 crores for the quarter, up by 68% and INR 45,512 crores for the year-to-date, up by 100% Y-on-Y.

Obviously, the year-on-year comparisons are going to look a bit skewed because of the COVID quarter last year. Total AUM is at INR 1,03,789 crores. That is up by 31%. The net income margin is up at INR 1,832 crores for the quarter, up 22% and INR 5,169 crores for the year to date, up by 21% and the PAT is INR 684 crores for the quarter. That's up by 31% and INR 1,813 crores for the year to date, that's up by 24% year-on-year.

So the Board of Directors today announced the unaudited financial results for the quarter and nine months ending 31, December 2022. Chola has delivered the best-ever disbursal, collections and profitability in Q3 FY '23. We have gained market share across product segments in Vehicle Finance and other business units.

Sale of commercial vehicles are expected to come close to the pre-pandemic peak of over one million units in FY '23 due to improved fleet utilizations, strong replacement demand and pickup in the road construction projects across the country. Despite high inflation and high interest rates, strong festive season sales and workforce returning to the Metro cities has helped drive growth. The housing market has also been very strong.

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Cholamandalam Investment and Finance Company Limited

February 01, 2023

	Aggregate disbursements in Q3 FY '23 were at INR 17,559 crores as against INR 10,430 crores
	in Q3 FY '22, a growth of 68%. Vehicle Finance disbursements were at INR 10,446 crores as
	against INR 7,647 crores, a growth of 37%. LAP disbursed INR 2,225 crores as against
	INR1,661 crores, a growth of 36%. Home Loan, which is Affordable Home Loan and Affordable
	LAP, disbursed INR 1,072 crores as against INR 539 crores for the quarter. That is a growth of
	99%. And SME disbursed INR1,782 crores registering a growth of 273% over INR 478 crores
	in the same quarter previous year.
	CSEL, a new business, Consumer and Small Enterprise Loan disbursed INR 1,868 crores for the
	quarter. Secured Business and Personal Loans disbursed INR 137 crores, and our total Assets
	under management stood at INR 103,789 crores. Our PBT-RoA was at 3.8% for the quarter and
	3.6% year-to-date. RoE was 19.1% year-to-date. And the company continues to hold a strong
	liquidity position with INR 7,396 crores of cash balance with a total liquidity position of INR
	10,104 crores, including undrawn sanctioned lines. ALM is comfortable with no negative
	cumulative mismatches across all time buckets.
	Consolidated PAT was at INR 685 crores, compared to INR 528 crores in the same quarter.
	Board of Directors approved an interim dividend payment of 65% being INR 1.30 paisa per
	share on the equity shares of the company. And in terms of asset quality, the Stage 3 assets stood
	at 3.51% with a provision coverage of 40.96% as against 3.84% at the end of September 2022.
	Total provisions currently carried against the overall book is 2.45% as against the normal overall
	provision levels of 1.75% carried prior to COVID-19 pandemic.
	So, we feel quite comfortable there. As the revised RBI norms, GNPA and NNPA stood at 5.37%
	and 3.76%, respectively. We carry INR 726 crores of higher provisions under Ind AS over IRAC.
	And the capital adequacy of the company was at 17.75% as against the regulatory requirement
	of 15%. Tier 1 capital was at 15.12%.
	So let me stop with that, and we are happy to turn it over to you for questions.
Moderator:	The first question is from the line of Abhijit Tibrewal from Motilal Oswal.
Abhijit Tibrewal:	Congratulations on a very good quarter. Sir, just two questions here. First thing is on the
	competitive landscape, how should we look at it, particularly in vehicle financing. How are
	banks behaving? Are we able to take IRR increases on the incremental disbursements that we
	are doing? This is in the context of the fact that on a Q-o-Q basis, we have seen about a 10 basis
	points expansion in vehicle financing yields. If we kind of look at your blended yields expanded
	by about 30 basis points. Obviously, I understand that's what to do with the LAP and the home
	loan business and the newer businesses that's important, too. So that is one thing I kind of wanted
	to understand that. I mean you've been able to deliver almost steady stable margins in this
	quarter. So, what is led to that?

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Cholamandalam Investment and Finance Company Limited

February 01, 2023

And the second thing was on the opex. Sir the employee expenses are actually growing in proportion with our disbursement. So is that the right way to kind of look at it or is there something else in terms of teams that you're building out in your newer businesses, which is leading to this high employee expenses?

Ravindra Kundu:Hi, good morning, Abhijit. See, in the case of vehicle finance, if you see that there are three product lines mainly in the commercial vehicle segment, heavy commercial vehicle, light and small, and we have been leader in light and small, which is our area of focus. In addition to that, we do tractor, used car, two wheeler product. The banks are competitive in the segment of heavy commercial vehicle and they take maximum share in that segment, which is actually a rate- sensitive product. And for us, it is not a priority as of now.

We mentioned that we will do HCV with respect to our own existing customer in the market where we are comfortable. And another thing is that the heavy commercial vehicle still is driven by the last fleet operator and medium fleet operator. The SRTO, The Small Road Transport Operator has not come back to the market. They are still buying the used vehicle, which is actually good for us because we cater in the used vehicle business as well. So that is the product mix we are doing it.

In terms of overall market, it is actually doing very well in terms of commercial vehicles. So both the players like those who are in top of the pyramid players and the middle of the pyramid players all are getting benefited because it is getting distributed by the product and by the segment which we want to do it. And that is how, we are able to manage better yield in that business.

Now coming to the opex, opex is in terms of ratio, it is looking high because our disbursement growth is significantly higher, and we need to spend money on account of variable pay for the disbursement, wherein the asset growth is 30%. So, until such time in the disbursement and asset growth does not come together at same level in tandem to that, you will see that little bit opex high.

At the company level, opex is also high because we have expanded our business in terms of new businesses and also deploy a lot of things into technology side also. So all those thing is going to get matured and we will be getting benefited on account of opex in the next one year time. And you will see that, that will add our RoA as well.

Abhijit Tibrewal:Sir, just one last question here. I mean at least in terms of newer businesses, the disbursement trajectory that we have seen is improving. So, I mean, is it fair to conclude that, I mean, based on whatever early delinquencies, collections, that you are seeing in the three new lines of businesses, that is giving you comfort to keep scaling it up and improve the momentum going ahead?

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	Cholamandalam Investment and Finance Company Limited
	February 01, 2023
Ravindra Kundu:	Yes, absolutely, right. In fact, delinquencies in this new business were significantly lower than
	the trend, what we see in the market for the same business done by the other finance company.
	But however, we have only done one year. We need to wait for that. And the way the bounce
	rates are there, or the earlier delinquencies are seen now, we can say that our new business
	portfolio is significantly doing better.
Moderator:	Next question is from the line of Umang Shah, from Kotak Mahindra.
Umang Shah:	Congratulations to the team for a very strong quarter. I have two questions. One is on the asset
	quality front. So, if I look at our gross Stage 3 numbers or GNPA under the new IRAC norms,
	gross Stage 3, or NPA numbers appear to be fairly steady or sticky in absolute terms for last four
	quarters. Whereas we are seeing a good rollback in our Stage 1 and Stage 2 buckets. So how
	should we read into this that our NPAs getting more stickier, or I just wanted to get some sense
	given that the overall collection efficiencies are fairly strong at this point of time?
Ravindra Kundu:	Yes. Historically, if you see that for our first three quarters of the year is always better for Stage
	1 and Stage 2. Stage 3, we get the maximum performance in the Q4 because first three quarters
	is a difficult quarter for the customers to pay two installment, or three installments, to roll back
	from 5th bucket to below 3 buckets. So obviously, we continue to keep them between 3 to 4
	bucket and then when it comes to the fourth quarter, when the customers start earning more
	money, then they will start, where they are giving us the higher installment and roll back their
	account.
	But good thing is that if you see the Stage 3, normally, it goes up during the Q2 and Q3, which
	has not gone up in this year. It has been coming down but has not come down significantly. If
	you see the last year performance or last to last year performance, we will be able to see that the
	same thing has happened in the past. This year, in fact, performing better because we are now
	driving 2A, 2B and 1A, 1B also. Therefore, we have been successfully holding the roll forward
	rate. Our roll-forward rate in vehicle finance is actually less 0.5%,which is significantly lower
	than what it used to be in the past. So, I can tell you that the Q4 performance will actually show
	you a better result in terms of Stage 3 reduction.
Umang Shah:	And sir, the second question is related to our home equity business, so both from disbursements
	as well as credit cost perspective needed some outlook. So, our home equity disbursements
	again, for the past three quarters, appear to be fairly range-bound and credit costs are kind of
	near zero for the first nine-month period?
	So, profitability clearly, its far more superior compared to what we have seen in the past few
	years. So, both from growth as well as a profitability perspective, how should we look at this
	business over the next one to two years? Just wanted some outlook on that front?
Suresh Kumar:	So, see, home equity in the previous year, we had our Stage 3 little bit higher, which we started
	rollback and Stage 3 reduction is on a continuous basis in a very good position. For example, in
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